Please answer the questions below and utilize the Accounting workbook attached a
Please answer the questions below and utilize the Accounting workbook attached as a guide.
1. Fully define the weighted average cost of capital of a firm in terms of all its components. 2. The formula for rE is D1/P0 + g, but the difference between the costs of equity based on the 10-
year and 5-year growth rates isn’t exactly equal to the difference between the growth rates. Why?
3. Based on the Capital Asset Pricing Model, will the required rate of return on Caterpillar be
greater than, equal to, or less than the expected rate of return on the S&P500 Index? Why? 4. Based on the regression equation, what is the expected return on Caterpillar if the expected
return on the S&P 500 Index is 11.44%?
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